Having a well-established and well-maintained credit history is essential for those who want to purchase a home.
Those who are looking forward to owning property will have to provide proof of a favorable credit record in order to improve their chances of being approved for a bond. Credit criteria have softened over the past few years due to the introduction of the National Credit Act (NCA) but banks are still strict with their lending policies and they are likely to remain that way.
A positive credit record shows that the lender has the responsibility and the means to repay whatever debt he or she has incurred!
A consumer’s credit record will have bearing on whether the bond will be approved and the interest rate at which the bank will be financing the deal. Banks also use the credit record to determine whether the loaner is a high-risk lender and what the probability is that they will be defaulting their payments.
As the above shows, establishing a good credit record is not always easy and it might be very challenging to some.
Here are a few tips that can help you build up a good credit record:
#1 – Start slow & small, and build up
Don’t apply for credit at too many places. The trick is to start small & slow, and build up with reputable credit providers.
Applying for too much credit might send the wrong message to the lender and it might make you seem desperate. Too many applications might also have the opposite effect and have a negative impact on your credit rating.
Pay back as much as you can as fast as you can and be sure to only take out the credit that you can afford to pay back.
#2 – Familize yourself with the power of three
The usual credit consumer will require at least three lines of credit. Less than three might lead to the lender reconsidering the loan because the history will be seen as too thin. In the same breath, more than three will seem like too much.
In an ideal world, it is advisable for you to leave a gap of 30% or higher between what you owe and your credit limit as lenders will look for this minimum gap!
It is also vital that you still have the necessary disposable income needed for bond approval in the future. Work out a budget and stick to it.
#3 – Don’t just have one kind of credit
Instead of having one type of credit, diversify and have different types of credit accounts. This will be received positively by credit score algorithms.
Applicants should not just have revolving credit, but also have a closed-end loan or an account like a car loan. As much as variety can be a good thing, the main point that loaners look at is how well these accounts are managed.
All accounts should be paid accordingly with no late payments. Correctly managing your accounts will reflect responsible behavior.
#4 – Transfer money into your savings account
Putting money into a savings account reflects financial discipline & stability, and builds a deposit at the same time. Having a deposit saved up will improve your chances further of being approved for a home loan.
Even an established credit history, you will still need to show the bank that you have the necessary levels of affordability to pay back the bond. Be realistic about what you can afford and budget accordingly.
Make sure that you are taking the necessary steps to building a good credit record and maintaining it in the long run.
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